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Interest rate pain has only just started

Jasmine Birtles 5th Jun 2023 No Comments

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We keep hearing (rightly) about the cost of living crisis, with prices going up all the time (food inflation is at a 45-year high at 19.1%, for example). But, although the Bank of England in its (lack of) wisdom has been putting up interest rates pretty much every month since the middle of last year, we haven’t properly felt the effect yet. It tends to take at least 9 months for interest rate changes to have an effect on the economy and on individuals.

Well, guess what…we’re about to feel it.

Interest rates are about to hurt

To give you an idea of how this is going to happen, The Money Charity points to the current situation with mortgages. It states “at the end of March 2023, the average mortgage interest rate was 2.75%. Based on this, households with mortgages would pay an average of £4,113 in interest over the year. Whereas for new loans, the average rate was 4.44%, meaning first-time buyers would pay an average of £8,237 in the year.”

If you have a nice, fixed five-year, or even ten-year, mortgage that you managed to secure just before rates went up…well done you…you can sit back smugly and watch others feel the pain.

If you haven’t, though, and particularly if your mortgage is coming up for renewal, the new payments are going to be a shock. Based on the figures above you could see your mortgage payments double each month. Who can afford that?

The increasingly useless Bank of England

I really do wonder how the members of the Bank of England can face the public right now. They get everything wrong – particularly the governor, Andrew Bailey – he who famously said last year that printing money (Quantitative Easing) doesn’t create inflation (yes it does).

As ever, this central bank – like most central banks around the world – has caused inflation by having a very loose monetary policy for too long, printing too much money, and then, in recent months, tightening it too hard by raising interest rates until they’re a stranglehold for businesses and individuals alike.

Recession worries

Our unpopular Chancellor, Jeremy Hunt, brought in by our unelected Prime Minister, Rishi Sunak, has gone on record saying that he would back more rate rises even if they took the UK into recession.

To my way of thinking that is entirely irresponsible as recession is worse than inflation. We have done phenomenally well to just skirt recession – particularly while Germany has slid down into it in recent months – and the last thing we need is to have a globalist Chancellor pushing his own country into the morass of economic misery. Haven’t we suffered enough?

Very high interest rates not needed

Nick Hubble, in his recent post on Fortune and Freedom, makes the same points and adds that inflation was going to come down anyway in the next few months because the energy prices are softening. The energy prices were much of the reason for the sharp rise in inflation rates here and across Europe in the last year or so and as those reduce, so does inflation. We really didn’t need these extreme rate rises. It really does seem that the Bank of England’s monetary committee just wanted to look like they were doing something.

I wish they would just stand back and do nothing much more of the time. Life would be a lot easier for many more of us if they did.